Drucker's Contributions to Nonprofit Management

November 17, 2005

By Leslie Lenkowsky For most of his career, Peter F. Drucker was renowned as an expert on business management, whose books and articles were widely read, and advice widely sought, by corporate leaders throughout the world. But late in his life, he turned his attention to the nonprofit world, writing a best-selling guide to running charitable groups and creating a foundation bearing his name to strengthen leadership in what he called the "social sector."

This shift is not as surprising as it might initially seem. Mr. Drucker, who died last week, was interested in nonprofit groups because he thought they played a key role in giving a purpose to modern societies, a task he felt that, despite their economic successes, businesses increasingly avoided. Unfortunately, as he would have seen it, there are now signs that nonprofit groups, too, are focusing more on their financial success than in serving others.

Mr. Drucker's outlook on businesses and charities was shaped by the tumultuous events in central Europe during the 1920s and 1930s. Born in Austria, he was a reporter and part-time student in Germany when the Nazis came to power.

On the verge of being expelled because of his writings, he moved to London and then to the United States, where he published his first book, The End of Economic Man: The Origins of Totalitarianism. Its theme, which would form the cornerstone of his thinking for the rest of his career, was that the rise of fascism reflected the hollowness of the old commercial order. Capitalism, he argued, was good at producing economic development, but its "failure to establish equality by economic freedom" undermined its legitimacy as a social system. In its place, the public rushed toward what Mr. Drucker saw as the "bankrupt" ideology of socialism, in both its German and Russian varieties, hoping for more satisfying results.

In the American corporation, however, he saw an alternative. Creatures of capitalism, businesses -- and especially large ones, such as General Motors -- excelled at creating wealth. But if they were well-managed, Mr. Drucker believed they could also provide a sense of status or community for their managers and employees. He was suggesting steps more fundamental than today's benchmarks of corporate social responsibility, such as giving money to local charities or eliminating practices and products that could be dangerous to humans and the environment. Instead, he urged companies to develop health and pension plans, involve employees in governance, decentralize factories to make them less distant, and much more that was often heretical to the executives to whom he was speaking.

Profits should not be the goal of economic life, Mr. Drucker contended, but rather an indicator of how businesses were doing in motivating their human resources to produce goods and services of value to consumers. He was also among the first to call attention to the competitive threat from Japanese corporations, partly attributing it to their closer management-labor relations.

Although he lived to see many of these recommendations win support, Mr. Drucker grew more and more pessimistic about American businesses. Waves of job cuts strained employee loyalty, labor-union membership was declining, executives were paying themselves too much, and directors were becoming too concerned about pleasing investors or avoiding hostile takeovers. While welcoming the resurgence of the entrepreneurial spirit, he wrote, in 1993, "Although I believe in the free market, I have serious reservations about capitalism."

Just three years earlier, Mr. Drucker had published Managing the Nonprofit Organization, his book of advice for leaders in the "social sector."

As he had with businesses, he saw in nonprofit groups a distinctively American innovation that could build community while providing valuable services and fostering innovation. Indeed, Mr. Drucker viewed nonprofit groups as leaders in the knowledge-driven enterprises that would characterize all economic activity in the future.

But while management practices had been getting better, charities still had room for improvement, especially in producing results, if they were to retain the confidence and trust of the American public. Without that, their existence -- and their ability to promote greater social equality -- would be in jeopardy.

Through his book and other writings, as well as the activities of the foundation he set up, which has been succeeded by the Leader to Leader Institute, Mr. Drucker sought to avert that fate.

As Jack Beatty, The Atlantic magazine's senior editor and author of a primer on Mr. Drucker's ideas, has observed, many of his recommendations amounted to repackaging advice he had long been giving corporations.

"Convert donors into contributors," urged Mr. Drucker, meaning that if nonprofit groups are to acquire more financial resources, those who give will need to feel more like participants. And learn how to offer volunteers a greater sense of "community and common purpose," he wrote, replacing the lost moorings of contemporary American life with the kinds of attachment that working for a nonprofit organization can provide.

Yet, just as Mr. Drucker's prescriptions for American business faced an uphill struggle, so too may his advice for nonprofit organizations.

According to a new report by Public Agenda, an organization in New York that conducted in-depth discussions with donors and leaders of large, national charities, the gap in perceptions of the "social sector" between small, "salt of the earth" donors and nonprofit leaders is large.

Donors identify positively with local organizations, pay little attention to headline-making controversies or calls for more regulation, and complain about slick, businesslike fund-raising campaigns and excessive salaries for nonprofit employees, according to Public Agenda's findings. By contrast, the national leaders are preoccupied with "the minutia of policy debates," support stronger regulation to preserve their organizations' credibility, and are relatively unconcerned with "the possible downside of assertive marketing and fund raising."

Management is ultimately about goals, not processes, habits, and rules, Peter Drucker said. His death should serve as a reminder to nonprofit leaders that the real value of the "social sector" is its ability to build community in an already impersonal world, and that that objective can get lost if leaders place economic and political objectives ahead of service to society.

Leslie Lenkowsky is professor of public affairs and philanthropic studies at Indiana University.